Hospital Finances Stabilized as Revenues Grew, Expenses Fell

Hospital finances stabilized in May as operating margins remained positive, revenues increased, and expenses fell, a report from Kaufman Hall shared.

The latest report reflects hospital performances from May 2023.

Despite being far from pre-pandemic figures, the median year-to-date operating margin index for hospitals was positive after spending months in the red, increasing slightly from 0.1 percent in April to 0.3 percent in May.

From April to May, net operating revenue grew by 2 percent and was up 9 percent from May 2022. Similarly, gross operating revenue increased by 4 percent month-over-month and was up 12 percent from last year.

Revenue growth was driven by outpatient services, the report found. Outpatient revenue increased by 6 percent from April to May and 14 percent year-over-year. Meanwhile, inpatient revenue grew slower, rising 1 percent month-over-month and 7 percent year-over-year.

Although the sector may be seeing slower revenue growth, patients are utilizing inpatient care more frequently. Adjusted discharges were up 4 percent from April and 10 percent from May 2022, while operating room minutes grew 5 percent month-over-month and year-over-year. Emergency department visits also increased, rising 5 percent from April and 3 percent from last year.

“Hospitals may no longer be experiencing the post-pandemic effect of pent-up demand for inpatient services, but patients are showing us they are becoming more comfortable with receiving care in this setting,” Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a press release.

“Hospitals can expect a ‘new normal’ of slowly increasing margins that may never return to pre-pandemic levels without reevaluating how and where care is being delivered.”

Hospitals experienced some relief with expenses in May, as total expenses and non-labor expenses did not increase or decrease from April. Labor expenses fell 1 percent from April to May, while supply and drug expenses rose.

“Now that hospital finances are showing signs of stabilization, it’s an opportune time for executives to reevaluate their longer-term business strategy,” Swanson added. “The continuing shift in patient demand from inpatient to outpatient services is particularly important and will inform business decisions for years to come.”

Hospital and health system executives predicted that patients would shift from inpatient to outpatient care in 2023. While this transition can help inform business strategies, hospitals continue to grapple with workforce shortages, which could negatively impact long-term plans and patient access to care.